BAT: At the intersection of business and digital transformation

Kenny MacIver — September 2018

Tobacco giant BAT is engineering a radical business model shift as it forges ahead with its aim to transform the industry with a range of electronic devices, such as e-cigarettes and tobacco heating products, which are potentially less harmful than smoking. Jean-Pierre Cussac, its global head of IT enterprise services, outlines how the BAT technology team is supporting this business transformation.

From hotels and transport to television and travel, the digital transformation of business presents both a huge opportunity and (in some cases) an existential threat that no company or industry can ignore. The tobacco sector is a great case in point — except that the digital wave is hitting just as its own revolution is gaining pace.

The market’s dominant players are in a race to move beyond traditional cigarettes to potentially less harmful ‘next-generation products’ (NGPs): vapour-emitting e-cigarettes and devices that heat rather than burn tobacco. With more consumers using these electronic products, it means that the tobacco and nicotine-consuming experience is changing and IT needs to support that. And that casts IT executives such as Jean-Pierre Cussac of British American Tobacco (BAT) as leaders of both digital and business transformation.

“We are at a business model crossroads,” says Cussac, BAT’s global head of IT enterprise services. “The evolution of NGPs is a game-changer for the industry. And that transformation will have a massive impact on how we’re going to embrace digital. In addition, digital plays a big role in an emerging category where people are looking for information about these new products. Digital can help engage and inform our target audience — adult smokers — of what alternative products with potential reduced risk are available to them, how they work and what the science tells us about these products versus cigarettes.”

The potential for that engagement is already written in financial results and forecasts. This year BAT, which is home to traditional cigarette brands such as Camel, Newport, Pall Mall, Lucky Strike and Dunhill, expects to generate more than £1 billion in NGP sales, through its Glo tobacco heating product (THP) and range of e-cigarettes with brands such as Vype and Vuse, up from £0.5 billion in 2017. By 2022, it predicts that new revenue stream to have reached at least £5 billion. And while today NGPs only account for 5% of its strategic portfolio revenues, with sales growth of its heated tobacco lines running at 750%, for the first half of 2018 versus the same period in 2017 — and cigarette revenues flat — the strategic direction is clear.Leading the revolution

To support this new direction, the IT organization is having to change rapidly. It is moving beyond a focus on ‘run-the-business’ IT, centered on enterprise platforms such as SAP, to “helping the business go digital,” says Cussac.

“To lead the digital agenda of this company, the IT organization needs to transform itself, unlocking new commercial value. So it’s not really about a back office organization that runs IT any more; we want to shift the focus to the front office and to participate in this big revolution.”

To get to that position, the IT organization has had to first go through its own multi-stage re-boot.

That kicked off in the first part of this decade when it undertook a consolidation and integration of the many disparate systems it was running in countries and regions around the world. At the core of that was Project TaO, a move to a single instance of SAP across all 190 countries in which it operates. With that global enterprise platform in place, the focus shifted mid-decade to reshaping the end-user experience through an enthusiastic adoption of cloud services.

A consolidation of data centers was accompanied by the move of many applications and servers to the public cloud, principally Microsoft Azure. Given the scale of the shift, BAT brought in expertise from global ICT company Fujitsu to help it manage the multi-year migration from on-premise to cloud IT and to handle day-to-day cloud operations such as access, control, patch management and upgrades.

The cloud roadmap certainly doesn’t lack ambition. Having decommissioned its Tier 1 data centers in Australia, Singapore and (soon) Brazil, BAT ultimately wants to adopt a hybrid cloud approach, with a single private cloud in Germany and the remaining applications and servers in the public cloud. Cussac estimates that it has already migrated half of its 2,000 workloads to the cloud; the rest will follow — even, ultimately, SAP.

The endgame is more strategic than practical, though. “From a technology standpoint, by having our IT in one place it is easy to manage, cost efficient and more contemporary. But it now gives us the opportunity to exploit the capabilities available on cloud platforms. The scalability, the pay-as-you-go pricing, the access to new capabilities represent a massive opportunity to really move fast, consume fast, be more flexible,” he says.Unlocking value

While that back office brings efficiency and optimization, it doesn’t deliver new commercial value or the competitive advantage needed in this changing market, says Cussac. “So where we want to play now is on the front office, to work closely with the rest of the organization to unlock the new business opportunity around NGPs.”

That requires IT processes and delivery to be increasingly more agile. “In the context of this game-changing opportunity we can’t deal with the likes of big waterfall projects that take ages to implement. In this market consumers shift very fast and so we need to be able to follow fast or even be in advance of them. That requires a massive transformation in the way we approach opportunities, the way we listen [to both colleagues and consumers] and the way we respond to the market.” For example, in Japan — currently the leading market for THPs — BAT is having to be highly responsive to changing consumer taste. And that means the adoption of new applications and approaches.Art of the possible

BAT, itself, is shifting to become more like a technology company, says Cussac. “The products we are delivering to consumers present the opportunity for new digital capabilities.

To get there the business needs to increasingly live and breathe digital — and that is a shift the IT organization needs to stimulate. “The challenge we have in IT is to ensure the wider organization is more digitally literate and aware because many people don’t always understand the art of the possible. When we talk about digital everybody gets excited but we need to ensure they truly understand what we mean by this and how we can use it to support our transforming business,” he says.

“It’s a critical shift to get people onboard and realize that to be successful in this new world you need to learn how to fail fast and then move on rather than stick with ‘solution thinking’ where the expectation is that a project needs to be on target, on time, on budget, etc. With digital you have to experiment and if something works you expand that and if it doesn’t you stop and do something else.”Disruptive forces

The stakes are certainly high for those organizations that don’t make that shift, as digital challengers are already having an impact.

Such disruptive forces have sharpened minds at BAT. “Business teams have spent a lot of time figuring out what digital means to BAT,” says Cussac. But the organization is under no illusion that it can do so alone. The pressures to react quickly and exploit digital technologies mean BAT needs to engage more deeply with its technology partners.

“The relationship with IT vendors has changed significantly,” says Cussac. “When we kicked off our program to transform the technology platform at BAT, the partner ecosystem was a bit challenged because suppliers were used to working one way and we wanted to disrupt that. We’ve worked hard to make sure that our partners are on the same page as us and see where we’re going — this has meant also looking for new suppliers to work with us. So it has been a big transformation.”Co-creating new models

But the nature of partnerships has also changed to become much more collaborative. Cussac offers a number of examples of such co-creation.

For the past seven years Fujitsu has been BAT’s primary partner for end-user services, providing the company’s helpdesk and managing users’ desktop and mobile devices. But that engagement is by no means a classic customer/supplier one, Cussac says.

“In recent years BAT and Fujitsu have worked together to understand how we can disrupt and change the model so it creates a more user-friendly experience and is more cost efficient for BAT,” he says. The lead on that has come from Fujitsu, he says. “We don’t need to go to them to outline our requirements — they listen, understand the business problems that we need to solve and come back with very interesting, disrupting initiatives.

“As a result, the way we manage support, helpdesk and the end-user experience is very much at the leading edge. For example, we are currently working with Fujitsu to explore how we leverage AI to remove language barriers in the helpdesk,” says Cussac. The goal is to create a helpdesk that is ‘language agnostic,’ so users can call or email using their language of choice, with the underlying technology handling real-time translation. That is particularly useful when helpdesk tickets need to be passed between groups of different nationalities and organizations in order to be resolved.

“Our mission has been to become an agile IT organization, and that gives us the foundation for the next chapter — creating a business that is truly digital.”

Machine-learning has also been deployed elsewhere. BAT uses a chatbot, named Robyn, based on Microsoft technology, which helps manage application support, handling queries on half a dozen of its major applications, including SAP.

Such thinking all stems from the change program that has reset the way IT is run at BAT, from both a technology and organizational standpoint — a transformation that has not only created a more agile organization but has reduced operating costs significantly.

“The level of change we have introduced in the IT organization is massive,” says Cussac. “From the adoption of cloud infrastructure, to the focus on application integration, to an ability to work with different technology players in the digital ecosystem, our mission has been to become an agile organization. And that gives us the foundation for the next chapter — creating a business that is truly digital.”

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